Distinguish between Reserve Capital and Capital Reserve.
- Meaning : Reserve Capital is that part of the uncalled capital which can not be called up except in the approved circumstances say for the purpose of winding up.
- Creation : It is created out of the uncalled capital.
- Optional/ Mandatory : It is not mandatory to create a reserve capital.
- Special Resolution : A special resolution is required to create a reserve capital.
- Time when it can be used : lt can be used only at the time of winding up.
- Writing off Capital Losses : It cannot be used to write off capital losses.
- Disclosure : It is not disclosed in the company’s Balance Sheet.
- Meaning : Capital Reserve is that part of the reserves which is not free for distribution as dividend.
- Creation : It is created out of capital profits.
- Optional/ Mandatory : it is mandatory to create capital reserve if capital profits earned by the company.
- Special Resolution : A special resolution is not required for a capital reserve.
- Time when it can be used : It can be used during the life of the company.
- Writing off Capital Losses : lt can be used to write off capital losses.
- Disclosure : It is disclosed under the head Reserve and Surplus on the liabilities side of the Balance Sheet.